The Defend Trade Secrets Act (DTSA) was enacted on May 11, 2016. The DTSA created a private, federal cause of action for trade secret misappropriation. Since its enactment, many have questioned whether common law doctrines, such as the inevitable disclosure doctrine, apply to actions under the DTSA. On the first anniversary of the its enactment, the United States District Court for the Northern District of Illinois recognized the applicability of the inevitable disclosure doctrine in an action under the DTSA.
Inevitable disclosure is a common law doctrine that allows a court to enjoin a company’s former employee from working for a competitor if the company establishes the inevitability that the employee will use its trade secrets in the employee’s new position. Inevitable disclosure is a favorable doctrine for employers because trade secret misappropriation may be difficult to prove. Yet the doctrine is criticized because it permits courts to grant a remedy that has the effect of a non-compete agreement, though the restricted employee did not expressly bargain for it.
The DTSA is silent on whether the inevitable disclosure doctrine may apply under the Act. Citing language from the statute, competitors have argued that it does not apply. For example, the statute provides that an injunction to prevent misappropriation may not “prevent a person from entering into an employment relationship” and that any conditions placed on employment must be based on “evidence of threatened misappropriation and not merely on the information the person knows.” Nevertheless, the court in Molon Motor & Coil Corp v. Nidec Motor Corp. considered the inevitable disclosure doctrine in ruling on a motion to dismiss an action brought under the DTSA.
Molon Motor & Coil Corp. (“Molon”) sued Nidec Motor Corp. (“Nidec”), alleging misappropriation of trade secrets under the DTSA. Molon contended that a former employee copied Molon’s engineering, design, and quality control data onto a portable drive before taking a new position with Molon’s competitor, Nidec. Molon further alleged that Nidec had used and continued to use Molon’s trade secrets that the former employee downloaded. Nidec moved to dismiss the misappropriation claim by arguing that there was no ground for inferring that it accessed or used any of the information the employee downloaded. In response, Molon relied on the inevitable disclosure doctrine by arguing that misappropriation could be inferred by circumstantial evidence.
In evaluating Molon’s argument, the District Court for the Northern District of Illinois considered the following factors: (1) the level of competition between the former employer and the new employer; (2) whether the employee’s position with the new employer is comparable to the position he held with the former employer; and (3) the actions the new employer has taken to prevent the former employee from using or disclosing the former employer’s trade secrets. The court found that the factors weighed in Molon’s favor. Molon adequately pled that Nidec is a serious competitor, and the former employee’s position with Nidec was similar to his former position at Molon. On the third factor, the record was silent. But the court found silence at that stage of the litigation unsurprising because a complaint is not likely to contain any allegations about what a competitor did to safeguard trade secrets.
Ultimately, the court held: “Molon’s allegations on the direct competition between the parties, as well as the allegations on the employment breadth and similarity of [the employee’s] quality control of the work at the two companies, are enough to trigger the circumstantial inference that the trade secrets inevitably would be disclosed by [the employee] to Nidec.” While the court did not specifically address whether it would enjoin someone based on inevitable disclosure under the DTSA, it deemed inevitable disclosure sufficient to survive a motion to dismiss. The court in Molon Motor permitted the case to move forward, which will allow Molon to seek discovery to further substantiate its claims.
The Molon Motor case may be used by trade secret owners as a blueprint for propelling their cases forward in jurisdictions where inevitable disclosure is recognized. While the case does not alter the pleading requirements for a misappropriation claim, it does illustrate how the doctrine may be used to infer misappropriation at the early stages of litigation. Because the DTSA is a relatively new pathway for trade secret litigation, only time will tell what role the inevitable disclosure doctrine plays under the Act.